Psychology Archives - Page 2 of 5

What Things Motivate Your Spending?

Introspection is not something many of us apply when spending money. Unfortunately, too many of us just buy mindlessly, without really think about why we buy the things that we do.

A little self-knowledge, though, can go a long way. If you are unhappy with your financial situation, maybe it's time to look at your spending habits, and figure out if they match with your spending priorities. Part of that is looking at your money motivations, and examining why you buy the things that you do.

Necessity

One of the main motivations for spending is need. If you need something, you are going to spend money on it. For most of us, money is a means to an end. We need food to nourish our bodies, so we spend money on food. We need a place to live/shelter, so we buy a home. Necessity is all about survival. If you are spending money so that you can survive, it's clear that you need to keep spending money on those things.

But make sure you know where the line is. Don't call things needs when they are really wants. You might be spending on something that you think is a need, when it really isn't. Another issue is trying to move out of survival mode. It's not fun to see all your money go to survival. If everything is a struggle, you might need to figure out how you can earn more money, perhaps with a second job or a side hustle.

Enjoyment

Another money motivator is enjoyment. Do you enjoy the things you spend your money on? I stopped buying trinkets because I realized that I didn't enjoy them. I had got in the habit of buying them, but I don't really have a good time with them. I am happier with a good book, or going out to dinner, than I am looking at a trinket. My husband likes collecting action figures. He enjoys looking for them on eBay, and getting a good deal (or sniping them out from under someone else). He also enjoys looking at them and arranging them for display.

That's fine. Having a hobby — one that you can afford — or buying things or experiences that you enjoy, is fine. But make sure that is what you really want to spend your money on. If you spend money on things and experiences that you don't actually enjoy, your money is wasted, and you are unhappy. Evaluate your spending, and make sure you are happy with where your money is going.

Impress Others

Sometimes, we spend money on things we don't enjoy in an effort to impress others. Look at your motivation there. If you are buying things because you are “supposed” to have them. Or because you think that it will add to your status in the neighborhood, you probably aren't very happy with the outcome. It's nice to feel as though you are on top of things, and that you are a major player in the neighborhood, but it's not true enjoyment. And it's certainly not need.

Examining your money motivations can help you figure out where you could change your spending, and maybe start using your resources for things that matter to you, rather than wasting money and racking up debt for things you don't actually need or even want.

How Scammers Use Personal Information To Fool You

By Miranda Marquit 4 Comments

Thanks to the Internet, and social media profiles, and the fact that an announcement in your local newspaper has probably been digitized and is searchable, chances are that there is a wealth of personal information about you available to scammers. My son has an Internet footprint (thanks to an obituary naming him as a survivor of his great-grandmother), even though I don't use his name on Facebook or in posts, and he's only nine years old.

The fact that personal information about you is available online means that scammers can use it to fool you into thinking that you are being contacted by someone you know, or someone you share an affinity with. Here are some of the ways that a scammer can trick you with the help of information that many people don't think about as being too telling online:

scammers use internet for personal information

Pretend To Be A Buddy

With a quick look at your Facebook profile or Twitter feed, it's possible for a scammer to get the name of a friend or two. And, if you have been lax with your privacy settings, they can get your email address or your cell phone. Someone I know was called on his cell phone (number available online), and was told that he was a friend stuck overseas. It happened that my friend had served a religious mission in this country with the contact in question. “Hey,” the guy said, “I was visiting our old mission, and I was mugged. I don't have any money or documents. Can you wire me some cash so I can get back home?”

It seems convincing at first blush, since you don't immediately think about how all of these clues appear on Facebook, or on some other social media profile or network. Luckily, my friend was suspicious, so he excused himself and called his friend's cell phone. Sure enough, his friend was home — safe and sound. If he had taken the conversation at face value and wired the money, he could have lost thousands of dollars.

A variation of this can also be used to scam grandparents and others. Be on the alert for such sob stories. Double check before you send money, whether your friend wants you to send money to help pay rent, or whether you are worried about them in another country.

Claim To Be An Associate Of An Associate

While it hasn't happened to me yet, I worry that someone will try to scam me by claiming to be an associate of someone I know online. It doesn't take much to figure out that I'm a freelance writer, and it's pretty easy to track down the sites I write for. Using this information, someone could easily claim to have an “opportunity” for me, dropping the name of someone I know online.

You should watch out for this as well. You might be approached by someone who claims they know one of your social media connections. After building a little trust, they could ask for money, or try to get your bank account information for “direct deposit” on a job or money making “opportunity.” Before you believe these stories, make sure to double check with your connections to find out if the introduction was made.

You can't be too careful online. Make sure you pay attention, and if your gut is warning you, heed it!

Have you ever had someone try to scam you using your personal information found online?

Are You Making Money Decisions While Impaired?

By Miranda Marquit Leave a Comment

When you make a decision, it's important to think clearly. This is especially true when it comes to making money decisions. However, there are a number of ways in which your ability to make sound decisions can be impaired. Whether you are investing, or trying to decide whether or not you want to buy something, you need to watch out: Impaired decision making can cost you thousands of dollars over your lifetime.

Emotions

When your emotions are fully engaged, it's much harder to make a good decision. When you feel really good, it's easy to be careless with your money, buying things you wouldn't normally buy, and feeling as though you can handle more risk. On the flip side, fear can be just as detrimental, encouraging you to sell low after buying high when you are worried about the stock market, or missing out on an opportunity because you were to scared. Before you make a money decision, consider whether or not your emotions are impairing you.

Peer Pressure

There is a lot of pressure to be like others, and to live their lifestyles. Whether you feel like you have to buy the same expensive dinner as your friends when you go out, or whether you think that you need a bigger TV in order to fit in with the neighborhood and impress your family, caving to peer pressure can become expensive. On top of that, it can lead you to make spending decisions that are incompatible with your financial priorities. Then, you are stuck with little money — and the stuff you have might not even be what you want.

Physical Needs

Your physical state can affect your mental state, and your ability to make decisions. Interestingly, feeling hungry can lead you to think that you want other things, too, even if you are considering non-food items. This can mean that you might think that you want to buy something, even if you don't. Also, being hungry might mean that you make decisions quickly so that you can get on to having food and sating your hunger. Impulsive and impaired: Not a recipe for good money decisions.

Other physical conditions can affect your ability to make good decisions as well. When your body is tired, you can be irritable, anxious, and your thinking processes might not be as clear as they should be. Physical pain and discomfort can also impair your decision making abilities.

Decision Fatigue

It's also possible to make progressively worse decisions the more you make. It's called decision fatigue, and researchers think that it changes the way we consider different situations. As you make more decisions, your ability to make good decisions is eroded throughout the day. This means that you might be better off making money decisions earlier in the day, before the petty decisions of the day wear you down.

Before you make a money decision, stop and consider how you might be impaired. Once you recognize that you might be impaired, you can re-evaluate what you are doing, and possibly put off making the decision until you are in a better frame of mind, and better able to make good money decisions.

What Are You Doing To Make Your Money Dreams A Reality?

By Miranda Marquit 2 Comments

Many of us have money dreams. Often, these dreams focus on some point in the future, when you have more money. We think about the things that we'll do when we have more money: Go on vacation, set up a charitable foundation, get rid of debt, pay off the mortgage, or accomplish some other feat.

Unfortunately, while dreaming about what we'll do when we have more money, we often overlook the intervening step of planning to make those dreams a reality. We dream of a financially sound future, but we neglect to make any provisions for actually getting there. As a result, having more money in the future remains a dream — and the future we dream about is never realized.

What Money Realities Do You Face?

First of all, you need to recognize where you are in terms of money. Honestly look at the money realities that you face. Look into the future and consider what's next. Just as you need to consider the financial implications of marriage, having children, and other milestones, you also need to consider your current situation. Figure out how where you are right now relates to where you want to be.

Next, you need to make a list of the steps that you need to take in order to get from where you are to where you want to be. This is where many of us trip and fall. We find ourselves unhappy with the current situation, and dream of what it would be like to have more money. We use phrases like “When I have more money” and “When I get that promotion” to describe what we hope will be a profitable future. But these types of wishes skip over the realities that we face now, and the actions that need to be taken in order to achieve your financial goals.

Create a Plan to Reach Your Money Dreams

Once you know where you are, and what needs to happen in order for you to achieve your money dreams, it's time to create a plan. You can look for ways to develop multiple streams of income, you can improve your skills so that you qualify for better pay, and you can also find ways to cut the unimportant spending from your life and save more money. There are a number of ways that you can work toward your goals, and they differ according to your situation and your preferred outcome.

The common factor, though, is that you have to take action. You need to consciously set out to achieve your financial goals in a way that renders them achievable. While you might have set backs, breaking down your goals into achievable financial resolutions that you can work on each year can help. Indeed, creating a plan for your money is one of the best ways to help you finally achieve those dreams.

Eventually, if you create and stick to a plan, you won't be saying, “When I have the money…” anymore. Instead, you will have the money. But it doesn't just happen, and you can't get to that point on mere wishes.

Would You Rather Live A Little More Now? Or Have A Pile Of Cash Later?

By Miranda Marquit 4 Comments

One of the more common financial moves is to save up as much money as possible, hoping to have a huge nest egg later so that it's possible to retire from work, and maybe even travel the world. Others hope that, not only can they have a little fun with the money they amass, but that they can also leave some behind for their posterity.

These are definitely admirable goals. Being able to save up money, and creating a situation in which you can leave a financial legacy to your children and grandchildren, are both things that can provide you with a sense of accomplishment — as well as acting as a testament to your level of financial responsibility. But does it have to be that way? Do you have to sacrifice everything right now so that you can save up for the future?

Live More Now Or More Cash Later

For some people, it is preferable to live a little more now, enjoying money while they are young, than to be scrimping and saving for a future they're not even sure they'll enjoy.

Mini-Retirements, Vacations, And Staycations

Instead of saving up all of your money for “someday,” you can spend some of your money now. One of the ideas that has caught on recently is that of the mini-retirement. Instead of saving up for 40 years to try and enjoy retirement later, some advocate mini-retirements. You spend between three and six months living somewhere else, or traveling around. When you return, you look for a new job.

Others make it a point to use their vacation time at work. It's possible to enjoy a vacation for one to three weeks, relaxing and taking it easy. And, many people like to spend a little extra to make the vacation particularly enjoyable or memorable. Some even decide to go on staycations, remaining within a local area, and living it up by going to restaurants and other establishments.

Spending money like this provides you with the opportunity to enjoy yourself in doses at a time, spread out over the years, while your health practically guarantees that you are able to do more. Personally, this is how I prefer to operate. I like to go on a few trips, and I like to go out to eat in nice restaurants, as well as use my money for other things. I figure we might as well enjoy the journey.

Don't Neglect The Future

Even if you decide to spend a little more money now so that you can better enjoy it, you still shouldn't neglect the future. Use tax-advantaged retirement plans that allow you save up some money for your future. Get the right insurance plans to help you prepare as well. We don't plan to need a huge nest egg, but we know that we'll need something.

Another strategy is to cultivate different income streams so that when retirement comes, you have regular income, and you don't have to rely on your nest egg alone. Being able to consult or freelance, or having a dividend portfolio, can help you earn money in retirement, and means that you aren't required to always be maxing out your retirement plans right now at the expense of living a little.

Are You Falling Victim To Price Anchoring?

By Miranda Marquit 5 Comments

One of the ways that you might be wasting your money could be due to the effects of anchoring. Anchoring is one way that retailers and others try to get you to spend more than you might normally spend. The effect of anchoring can also be seen in your other financial decisions, including investing decisions.

The idea of anchoring is that you use a value you know to make a decision about something you may not know about. Often the anchor price or value does not actually have a bearing on the actual value.

Price Anchoring Investopedia offers a great definition of anchoring:

When anchoring, people base decisions or estimates on events or values known to them, even though these facts may have no bearing on the actual event or value.

Anchoring can affect the way you make money decisions in your daily life, as well as in more long-term situation.

Spending More Money On Retail

One of the most common ways anchoring is used is to encourage you to spend more money than you normally would. This can be related to the idea of buying something in a “middle price range.” Something expensive will be presented next to something that is less expensive (but still not the least expensive). The idea is to get you to purchase something that is pricier than you would purchase normally.

Anchoring works at stores, when you see something expensive. That price for the item is “anchored” in your mind as something that you can expect to pay. So, when you see something next to it that is a little bit cheaper, that item suddenly seems like a good deal. The cheapest version of the item might work just as well, but it suddenly seems too cheap. Is there something wrong with the quality? Instead of getting the cheapest possible item, you go with the mid-range price. It feels like a good deal because you didn't pay the highest price, and you also feel good because you didn't “cheap out.” You feel like you got a good value, even if you probably would have saved money and still been fine with the lowest priced item.

Anchoring In Investing

Anchoring in investing is another issue. During times when your stock is losing value, Investopedia points out, you might be inclined to hold on to the stock because you want to at least “break even.” You don't want to sell until the stock at least reaches the price you paid for it. This is another form of anchoring. In your mind, the stock is “worth” a certain amount because that is the price at which you bought it. Even if the fundamentals have changed, and you should cut your losses (or harvest them for tax purposes), the “worth” of the stock is anchored in your mind.

Anchoring also works on a wider scale in the markets. A stock might remain stubbornly high because a certain expectation for price has been promoted. This could very well be seen in the Facebook IPO. There is already an expectation of what the stock should be valued at, so the market could easily adhere to the principle of anchoring when Facebook becomes publicly available.

Making Better Decisions

It's up to you to recognize anchoring situations. Instead of letting a fixed price set the value, consider what you want to pay before you head to a store or restaurant. Do research on investments to avoid letting your emotions rule you too far when making buy and sell decisions. Be aware of the effects of anchoring, and work to combat them.

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